Published 11:00 pm, Sunday, March 30, 2003

El Paso Corp. lost $1.7 billion in the fourth quarter and $1.47 billion for all of 2002 mostly because of its settlement of allegations it manipulated California's natural gas market during an energy crisis and changes in how it accounted for long-term contracts.

The losses reported Monday amounted to $2.92 per share in the fourth quarter and $2.62 per share for the year. In 2001, the company earned $375 million, or 72 cents per share, for the quarter and $93 million, or 18 cents per share, for the year.

Excluding the California settlement and other one-time items, El Paso reported a $407 million loss, or 69 cents per share, for the three months ended Dec. 31 compared to earnings of $412 million, or 79 cents per share, in the year-ago period.

Analysts surveyed by Thomson First Call had been expecting earnings of 15 cents a share for the quarter.

Revenue for the quarter amounted to $2.8 billion versus $2.76 billion a year earlier.

One-time charges in the quarter amounted to $1.3 billion, or $2.23 per share. Of that, the company said $644 million, or $1.08 per share, came from the California settlement; $222 million, or 37 cents per share, came from a change that eliminated "mark-to-market" accounting, which allows companies to record expected earnings from long-term contracts up front; and writedowns on various power and merchant assets, including an Australian pipeline investment.

For the year, its revenue fell to $12.19 billion from $13.65 billion in 2001.

Analysts expected the losses as previously announced by El Paso, and noted the company needs to keep selling assets and successfully renegotiate a $3 billion bank facility due in May to stay on track with its plan to strengthen finances and focus on core pipeline, production, midstream and non-merchant power assets.

El Paso is among energy companies battered by a weak market, skittish investors and falling shares throughout 2002 in the fallout of Enron Corp.'s 2001 collapse.

Last year, the company sold nearly $4 billion in assets and cut $300 million in costs. This year El Paso launched a plan to sell more assets to raise cash and pay debt. So far, it has sold $1.7 billion in assets, halfway to its $3.4 billion goal for 2003.

The company has drawn down $2.5 billion of its available $5.5 billion in cash and credit. El Paso said the company expects to earn $1 per share in 2003 as previously announced, based on gas prices and the impact of the California settlement.

"Some of what happened to us can be blamed on an industry in turmoil," said Ronald Kuehn, who replaced William A. Wise as chairman and chief executive in March. But other problems are attributed to bad investment decisions and heavy long-term debt, he said. The company said in a lengthy report filed Monday with the Securities and Exchange Commission its long-term debt is $16.7 billion, including $8.5 billion in subsidiary debt.

"Today El Paso is meeting its challenges head-on," Kuehn said.

One of those challenges includes a proxy fight to oust the entire board by Selim Zilkha, one of El Paso's largest shareholders. Zilkha has complained that El Paso's board lacked members with oil and gas industry experience, and on March 11 announced his intention to urge shareholders to elect his proposed slate of directors, including himself. El Paso since installed Kuehn as its chief and added two more oil and gas industry executives to the board. Shareholders can decide at El Paso's annual meeting, which has yet to be scheduled.

The California settlement, which needs approval by regulators and courts, involves payouts over 20 years and should let El Paso leave most of its litigation woes behind. If approved, it will settle numerous civil lawsuits, state and federal investigations and administrative proceedings that probed claims the Houston-based natural gas company withheld supplies from California and drove up prices in 2000.

El Paso shares closed up 15 cents at $6.05 Monday on the New York Stock Exchange.